Loyola Chicago's run extends beyond sports as university lands an upgrade

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CHICAGO – News worth cheering about at Loyola University Chicago extends beyond its Ramblers’ winning ways on the basketball court to the finance team’s office.

The school won an upgrade late Friday tied to its improved finances, as Moody’s Investors Service late Friday raised the school and its $292 million of debt sold through the Illinois Finance Authority one notch to A1, assigning a stable outlook.

The university's prospects are looking better given the national attention over its men's basketball team's NCAA success. The team, seeded No. 11 in the South Region, beat the odds Saturday to reach the Final Four.

The upgrade is due to the school’s “excellent and growing wealth levels, including strong liquidity, and its consistently good operating performance, better than expected with the assumption of higher debt service payments,” Moody’s wrote. Loyola’s credit also benefits from its successful execution of strategic plans following the August 2016 installation of LUC's first lay president, Jo Ann Rooney, in the school’s nearly 150-year history.

The news may be welcome by the administration but it’s overshadowed by its basketball team’s rise.

It reached the Final Four for the first time since 1963. School leaders have said they hope the national and even international attention garnered by the team, and its 98-year-old chaplain Sister Jean, raises Loyola’s profile.

Whether that translates into further improved credit quality remains to be seen. Moody’s said “strengthening of brand and reputation, resulting in further improvement in student demand and tuition pricing power” is among the factors that could contribute to further credit upgrades along with improved cash and investments and a diversification of revenues.

“Loyola already has well-established demand that drove up enrollment in the past few years,” said Moody’s higher education analyst Diane Viacava. “The region is fiercely competitive from both area and out-of-state institutions, so it is uncertain how many more freshmen or transfers will enroll due to its NCAA tournament success. But that success is bringing a bright media spotlight on them that will definitely have applicants who may not have considered them before think of them now.”

The A1 also reflects Loyola's comparatively large scale and well-established demand as a Jesuit urban comprehensive university in Chicago. Total cash and investments of $907 million are up from the recent low of $798 million in fiscal 2016. Spendable cash and investments stand at $745 million.

Challenges include a highly competitive market for students and that limits the school’s ability to raise tuition without damaging demand. The university looking to trim expenses by $8 million to offset tuition limits.

Fundraising is comparatively low relative to peers. Fiscal 2017 annual gift revenue totaled $22 million, up from $19 million. The university has hired a new administrator with a strong background in giving. “LUC is contemplating the launch of a campaign for its sesquicentennial campaign in 2020,” read the Moody’s report.

The stable outlook reflects expectations of continued strong operating cash flow sufficient to maintain good liquidity even with large debt repayments, with generally stable student demand and tuition revenue growth, Moody’s said.

A “critical strategic initiative” includes a planned expansion of its existing footprint internationally by leveraging the Jesuit global educational network. LUC's relationship with Trinity Health Credit Group, rated Aa3 by Moody’s, is among its strategic plans. Trinity acquired Loyola University Health System from the university in 2011 but LUC retained its medical and nursing schools, both located adjacent to LUHS’ campus.

As a condition of sale, Trinity paid $75 million toward LUC's Center for Translational Research and Education on the Health Sciences Campus that opened in 2016. Trinity also pays annual academic support payments that amounted to about $23 million in 2017.

All of LUC's long-term debt is fixed-rate. It has a $74 million commercial paper program, with payments of the maturing commercial paper supported by a letter of credit from PNC Bank that terminates in April 2019.

Loyola has an enrollment of 17,000.

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